Opponents continue to protest -- most recently at a U.S. House subcommittee hearing -- that the merger of two of the three largest pharmacy-benefits managers would reduce consumer choice, increase costs and decrease overall satisfaction. The outlook for approval looks positive, however.

By James Lawson

Wednesday, October 5, 2011

Opposition continues to mount against the proposed $21-billion merger between two of the three major players in the prescription-benefits-management industry. Under the proposal, the third largest player, St. Louis-based Express Scripts Inc., would acquire the largest company, Medco Health Solutions Inc., based in Franklin Lakes, N.J., in a stock exchange deal.

If approved by the Federal Trade Commission, the merger would create a mega PBM that has Woonsocket, R.I.-based CVS Caremark as its only competitor. In 2010, Express Scripts reported total revenues of $44.5 billion, nearly double its 2009 revenues. Medco reported 2010 revenues of $66 billion.

Opponents fear such a merger would reduce competition and eventually increase the cost of medication. They also believe the merger would strengthen the PBMs' "perceived coercive power" to steer business to their own mail-order and brick-and-mortar pharmacies.

An earlier bid by Express Scripts to expand its market share through a merger with CVS Caremark was rejected by the FTC in 2006 because of antitrust concerns.

Will this latest merger proposal alleviate those concerns? Both Express Scripts and Medco officials are optimistic -- with a decision by the FTC anticipated in either first or second quarter of 2012.

Company officials contend the merger would allow them to provide "safer, more affordable and more accessible medicines."

In September, Express Scripts CEO George Paz said, "PBMs make prescription drugs more affordable by creating old-fashioned American competition among brand name and generic drug manufacturers, as well as among 60,000 chain drugstores, mass merchandisers, independent pharmacies and grocery pharmacies. We ride the same horse with our clients, helping them benefit directly from our bargaining know-how and world-class clinical initiatives."

Medco is a willing partner.

CEO David Snow, in the joint press announcement, said "combining the complimentary expertise of the two companies ... [will] significantly accelerate efforts to reduce overall costs in the healthcare system and improve the quality and efficiency of care delivery."

Steve Graybill, a senior benefits consultant at New York-based Mercer, says the proposed merger is likely to happen, and he believes it will promote overall growth in the PBM industry, as some healthcare providers will either promote their PBMs for further growth or opt to form a PBM if they don't have one already.

He says the PBM market may also see growth via the development of niche PBMs to accommodate the specialty-prescription market.

Meanwhile, interest groups are making their arguments to the public and the FTC.

Antitrust attorney David Balto, a senior fellow at the Washington-based Center for American Progress Action Fund, says a growing coalition of organizations are opposed to the proposed merger, including unions, employers, healthcare plans and more than 20 states.

Several national associations have also weighed in, including the Independent Specialty Pharmacy Coalition, the National Community Pharmacists Association and the National Coordinating Committee on Multi-Employer Plans.

"There are various stakeholders with differing perspectives," Balto says. "They believe this proposed merger is anti-competitive. The PBM industry is probably the only area in healthcare that goes unregulated. We have to educate the stakeholder ... . We want the FTC to take a harder look at the PBM."

NCPA Associate Director John Norton says consumers have already been affected by limited competition among the PBMs because of enticements to use mail-order pharmacies rather than their local pharmacies.

Because consumers may receive larger quantities of medication with lower out-of-pocket co-pays, "the consumer feels he has no real choice but to order through the mail-order system," he says.

But studies, Norton says, have shown that consumers prefer getting medication from their local pharmacies, rather than through mail order.

In addition to the concern about competitive pricing is apprehension about overall customer satisfaction.

Overall satisfaction with mail-order pharmacies, as measured by J.D. Power and Associates, has declined considerably in 2011 from 2010, primarily driven by decreases in satisfaction in prescription ordering and prescription delivery, according to NCPA.

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Jennifer Mallon, general counsel at the NCPA, says the proposed merger would give the new company "an inordinate amount of control. ... The PBM is now setting the rules. They are playing both sides of the business. They are administering the prescription portion of the health plan and then are providing the medication as well through their distribution network."

Should the merger be approved, she says, consumers will lose the ability to choose where to get their medications.

"Many of our pharmacies," she says, "are willing to make the same arrangements as the mail-order pharmacies, but are not getting the same opportunities. Are we going to have a PBM behemoth that may control 50 to 60 percent of the prescription volume?"

Russell Gay of the ISPC says the merger will allow the PBM to divert a significant portion of the specialty-prescription business so that certain drugs -- such as Acthar gel (adrenocorticotropic hormone), a drug for Multiple Sclerosis sufferers, could become exclusive to the PBM. The cost has already recently escalated 400 percent, he says.

The merger could result in an atmosphere whereby "as a patient or consumer, you no longer have choice. Whenever you have no active competition, service goes down," Gay says.

A recent study by the Chicago-based Midwest Business Group on Health finds that few employers understand specialty-pharmacy benefits, and only a fraction of them are "aggressively managing what has become the fast growing area of healthcare spending."

Federal lawmakers also are paying attention to the controversial proposed merger.

A congressional subcommittee is studying the issue, and interested parties -- some fearful for the survival of the small community pharmacy -- testified in late September before the U.S. House Subcommittee on Intellectual Property, Competition and the Internet.

Can Express Scripts succeed where it failed a few years ago?

"There is a much more uphill climb," says Balto. "The FTC is taking a harder look at PBMs. Congress is tremendously energized. It's crystal clear that there is concern."

Lowell Weiner, vice president of corporate communications at Medco, declined to comment on the opposition, but says the merger would help "lower the cost of quality drug care, drive out wasteful spending and protect the consumer. There are clear benefits for the private and public sector. This is another step in improving health and safety."